Roc Oil Purchase (ROC ) and interests

We purchased a third position in ROC today at 3.94. Although the price has run up recently while we have been analysing this share, we used patience to buy at 3.94, as we decided to buy when the price was over four dollars.

This position is to establish our interest in the stock and represents a 1/3 of what we currently consider a full position. In many circumstances we will even buy more of a company than a full position, for example we see great value, options trading necessitates a larger position, in established companies with long track records which we are very comfortable holding for 5-20 years.

Buy 1000 ROC at 3.94

Fund currently looking at NAB, MMA, BPC and we have pre-registered for Snowy Hydro.

Looking to Buy NAB

Key Dates for NAB

2 June 2006* Ex-Dividend Date for 2006 Interim Dividend

8 June 2006* Record Date for 2006 Interim Dividend

13 July 2006* Payment Date for 2006 Interim Dividend

Closing Price: 35.23

We intend to buy NAB in thrids as part of our long term buy to hold strategy. We have been waiting for a market pull-back and believe now is a good time to by our first third in NAB.

The reasons for this include; the fund plans to ultimately own long term positions in the major banks and find NAB the most attractively priced at the moment. More later.

Why not Argo? MMC Contrarian

The fund decided not to invest in Argo at this point as investors have bid the share price up to NTA of 1.30. We view that as too rich a price to pay for their investing expertise.
The fund is now more interested in MMC Contrarian, which has around a .85 NTA if memory serves me well.

Super strategy full of pitfalls resurfaces

Take care before combining gearing, a unit trust, and your super fund writes Tony Negline

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May 03, 2006

AUSTRALIAN financial services regulators have a favourite expression: "If it sounds too good to be true, it often is."

This warning is issued to remind investors to be careful before committing to anything too outlandish. Unfortunately, some people never learn.

When it comes to superannuation, which is a long-term investment with attractive tax concessions, there are plenty of ways to destroy a person's retirement nest egg.

And, with self-managed super funds (SMSFs) more problems can arise because the responsibilities of running a fund properly rest with trustees who must be members.

The Australian Taxation Office has repeatedly told us that if a trustee breaks the rules the fund may face consequences which can include taxing the fund's assets (excluding the fund's undeducted contributions) at 48.5 per cent of the assets of the fund.

An old strategy has resurfaced and before acting on it a trustee should seek some very robust advice.

The strategy is presented as a way of building an investor's superannuation assets via personal borrowings.

How does it work? An investor borrows money and places the money in a private unit trust.

The investor's SMSF also invests in the same unit trust.

With the total monies, the unit trust purchases an investment property.

The investor's borrowings are used to earn income -- which would be paid via distributions from the unit trust -- and therefore interest costs and other expenses associated with the property would probably be tax deductible.

Over the years following, the investor directs all of their compulsory and voluntary employer super contributions into their SMSF.

The SMSF trustee invests these new contributions by buying more units in the unit trust.

The investor would then repay the debt by redeeming their unit holding in the trust (the unit trust has the funds to pay out these redemptions because it has the additional investments made by the SMSF).

Over time, the super fund will become the only unitholder in the trust and if the property was sold then the gain would be taxed at concessional tax rates applying to super funds.

It's no exaggeration to say this strategy is very complicated and it would be very easy to make a mistake at some stage through a lack of vigilance by anyone involved in administering the strategy.

From a superannuation legislation point of view there are at least six issues that have to be addressed before a trustee should implement the strategy.

The first point to note is that a super fund cannot invest in anything unless its investment strategy allows that investment.

Further, the fund's trust deed must also allow the investment.

Thirdly, a specific super law does not allow a super fund to loan money or provide any financial assistance to its members or a member's relatives. In August 2001, the tax office said that a SMSF trustee cannot allow any property it holds directly or indirectly to be used as a security for a borrowing by a member or their relatives.

As a result, the property which is purchased by the unit trust cannot be used by the SMSF member as security for the borrowing they enter into in order to invest in the unit trust.

Also, the SMSF cannot allow the member's units in the trust to be used as security for borrowings.

The member would have to use some other asset as security for the borrowing.

In addition, an agreement would have to be in place between the SMSF and the other unit trust investor stating that the investor will only deal with their unitholding in such a way that would not cause the SMSF to lose its access to tax concessions or cause the trustee to breach any super laws.

Fourthly, some SMSF trustees may be tempted to use this strategy to transfer a property they already personally own into a unit trust and have their SMSF purchase units in the trust. Such a strategy might be seen as a handy way of extracting cash from the SMSF.

This can only happen with business real property. That is, it is always used wholly and exclusively in the running of at least one business.

Furthermore, parties deemed to be related to the SMSF (defined as SMSF members, their relatives or entities controlled by the members or their relatives) would not be allowed to rent the property unless it was business real property.

The only exception to this rule would be the situation where the SMSF's unit trust holding represents less than 5 per cent of the market value of the SMSF's total assets.

If the business real property is owned by a trust or company then that trust or company must not have any borrowings and must only be leasing business real property to SMSF related parties

Finally, we come to the sole purpose test. This states that a super fund must only be run for the purposes allowed by super laws.

The main purpose of running a super fund must be to provide retirement benefits for the fund's members. Would this arrangement be deemed to be an elaborate arrangement to channel super contributions into private hands?

It would be ironic if someone entered into the strategy, got its implementation wrong and was penalised as a result.

Tony Negline specialises in superannuation. He may be contacted at www.allthingsconsidered.biz

SMSF Transfer of personal assets to super

From http://funds.comsec.com.au/Features/Articles/TBC-Articles.asp?ArtId=193

If you have a self-managed super fund (SMSF) and own an asset outside your super, you may be able to transfer ownership of the asset directly into your fund. You’ll then be taking advantage of the 15% tax on earnings that applies to super, rather than paying tax at your marginal tax rate, potentially making a tax saving of 33.5%. The types of assets that can be transferred are limited, and you’ll need to find out whether your asset is one of them.

Even though you will probably have to pay tax on the transfer of ownership of the asset (and sometimes stamp duty), the long-term tax benefits may compensate for the short-term liability. If you’re self-employed and can claim a tax deduction for your super contributions, you can use your asset to make an “in-specie” contribution to super so that the tax deduction reduces the total tax you pay.

Although super funds are not permitted to borrow money to invest, they can access geared exposure to the share market through Regular Instalments.

Watching NAB Closely

NAB Closed today 4 May at 36.580 down .66 (1.77%)
This is within the range that the Fund has targeted to write PUT options on NAB. The fund will now closely monitor NAB over the coming days and weeks looking for the best entry price. If this is a break of the upward trend caused by a some what unexpected rise in interest rates then NAB could head even lower below 36. The fund believes the share price of the main four banks could all head lower in coming years as the wonderful economic conditions they have enojoyed can't last forever.